Op-Ed: Warren Would Protect Consumers, Not the Banks

My op-ed appears in The Hill's Congress Blog.

NCLC Practice Tools

 Here are some recent NCLC practice tools: 

1. Free Webinars:   July 28 at 2pm:  "Fundamental Freedoms in Manufactured Home Communities " and  August 19th at 2pm : "Dealer Kickbacks:  How Car Dealers Are Paid to Put Us in More Expensive Loans and How We Can Stop It".  Contact jhiemenz@nclc.org for this  and future webinars.  Go to www.consumerlaw.org/issues/seniors_initiative/webinar.shtml for the 2010 schedule and FREE downloads of  PAST webinars

 

 2. Four New NCLC REPORTS:  

Deceptive Practices & Warranties Ed. (May-June): Practice implications of two June Sup. Ct .  arbitration decisions; new way to attack arbitration claused; 5 lessons from a $2 million award for sale of a rebuilt wreck

 

Bankruptcy & Foreclosures Ed. (May-June): 2 new Sup. Ct.  bankruptcy decisions on disposable income and claiming exemptions; the new Home Affordable Unemployment Program

 

Consumer Credit & Usury Ed. (May-June): FRB limits on credit card penalty fees; SAFE Act's implications for mortgage brokers AND consumer attorneys; demise of the guaranteed student loan program; new rules re student loan disability discharges

 

Debt Collection & Repo Ed. (May-June): consumer victories defending collection suits; $1.5 million debt harassment award; GAO report on debt settlement; FCC rule on pre-recorded calls; report on debt buyers; report on self-help repossessions; FDCPA case summaries

 

3.   Online registration and the Consumer Rights Litigation Conference  brochure now available at www.nclc.org --the consumer law highlight of the year,  Nov. 11-14, 2010, at the Park Plaza Hotel,  Boston, with over 50 breakout sessions, a Consumer Class Action Symposium, and intensives on mortgage litigation, debt collection defense, and bankruptcy protection for homeowners.  Join over 700 colleagues and fabulous speakers.  CLE credit. 

 

4. Discriminatory mortgage upcharge class certified in Ramirez v. Greenpoint Mortgage Funding, Inc. (N.D. Cal. July 20, 2010), reprinted at www.nclc.org/unreported, based upon brokers being given discretion to increase mortgage loan interest rates.

 

 5 .  Additional FCRA cases on  furnisher liability now analyzed on Fair Credit Reporting's companion website, a free resource for subscribers to that volume.  

 

 6 . NCLC launches its new website--check it out at www.nclc.org   

 

Former Reagan Administration Solicitor General Charles Fried Supports Elizabeth Warren To Head Consumer Financial Protection Bureau

See this.

Elizabeth Warren for Consumer Financial Protection Bureau Director

by Deepak Gupta

The debate over whether President Obama should name Elizabeth Warren to head the new consumer financial protection agency -- an agency for which she provided the intellectual architecture, and that probably never would have been created without her  -- has taken on a surprisingly high profile over the past week, at times resembling an election campaign or Supreme Court nomination fight. 

On Friday, Felix Salmon went so far as to deem Warren's nomination a "foregone conclusion." And the latest signs, including positive comments today from Robert Gibbs and a steady stream of endorsements in the Senate, do suggest that Warren's appointment has become increasingly likely. One key indicator is that Gibbs described her not only as a "terrific candidate" but also as "very confirmable." (Interviewed a few days ago on Good Morning America, Obama himself was more equivocal.)

Today, Public Citizen endorsed Warren's candidacy and rolled out an online petition for supporters to sign.  It's no secret that the contributors to this blog are, and have been, strong Warren supporters all along. As Jeff Sovern said last week, "I want the CFPB to be just like Elizabeth Warren. . . . We need an agency that bases its decisions on empirical realities rather than ideology. Just like Elizabeth Warren. And if that's what we want, shouldn't the CFPB be led by Elizabeth Warren?"  Over at Credit Slips, where Warren was once a contributor, her friends and academic colleagues have been posting some must-read commentary on her candidacy. Katie Porter describes Warren--the person, not the caricature--as someone who sincerely believes in markets and wants to make them function more efficiently. And Bob Lawless talks about Warren as someone whose thinking is grounded in facts and pragmatism, not ideology. Finally, Adam Levitin demolishes one of the baseless criticisms of Warren that's been making the rounds--that she lacks the necessary administrative skills. (By the way, does anyone really believe that her opponents' true concern is insufficient administrative experience?)

My own view is that Warren should be the nominee, but not primarily for the reasons cited above. The other top candidates, Michael Barr and Gene Kimmelman, are experienced and well-respected consumer advocates who could probably also be counted on to arrive at the elusive right mix of empirical realism, consumer protection, and flexibility. Both have more Washington experience than Warren does. Indeed, Barr has been the true architect of the financial reform legislation within the administration and would bring to the job considerable government experience together with a scholarly background on consumer financial protection issues. He would be a fine choice. That said, Warren stands out for two reasons:

Truth 1, vitaminwater 0

by Steve Gardner

The Center for Science in the Public Interest, working with private plaintiff firms Reese Richman, LLP  and Whatley Drake & Kallas, were pleased to get a very well-considered opinion in our lawsuit against Coke involving vitaminwater (Coke  uses the lower case, as does the Court, so I grudgingly do as well).

I say that the opinion is "well-considered" because the Court wrote thoughtfully and well on many nuances of the law involving FDA regulation of food labels and the interplay with state consumer protection law.

Of course, it's nice that the Court roundly rejected almost all of Coke's arguments.

In short, our lawsuit says that it's deceptive to call a sugar-water drink "vitamin"-anything and the opinion essentially agreed that this states a cause of action.

                       

 

According To Data Analysis, Just-Completed Supreme Court Term Most Conservative "In Living Memory"

The Roberts Court just completed its 5th year. According to this article by Adam Liptak in today's New York Times, "[i]n those five years, the court not only moved to the right but also became the most conservative one in living memory, based on an analysis of four sets of political science data." Perhaps some of the recent movement can be explained by Justice O'Connor's departure and the ascendancy of Justice Alito, who, according to this 2009 statistical study by William Landes and Richard Posner, is the 5th most conservative justice in history. (Chief Justice Roberts is ranked fourth most conservative, but he replaced Chief Justice Rehnquist, who ranks second most conservative.)

How the New Consumer Financial Protection Law Will Affect FTC Authority

Guest Post by Dee Pridgen

 As consumer advocates celebrate the new consumer financial protection law, which certainly contains many good things for consumers, I wanted to take some time to figure out how this legislation will affect the nation’s first national consumer protection agency, the Federal Trade Commission.  While the FTC has neither been abolished (as has the Office of Thrift Supervision), nor suffered mandatory transfer of functions and personnel to the new Bureau of Consumer Financial Protection (as have the bank regulatory agencies), its authority and power in the area of financial services has been diminished, and it did not gain the quid pro quo hoped for in terms of streamlining the outmoded Magnuson-Moss rulemaking procedures.

The new law creates the Bureau of Consumer Financial Protection (BCFP) with sweeping powers to regulate in the consumer financial sector.  All the consumer financial protection functions of the Federal Reserve Board, Comptroller of the Currency, Federal Deposit Insurance Corporation, National Credit Union Administration, Department of Housing and Urban Development and a few other government entities are transferred to the BCFP. 

The FTC loses authority to promulgate rules, issue guidelines, or conduct studies or issue reports under the federal consumer credit laws but it retains its authority to enforce the credit laws with respect to entities under its jurisdiction (i.e., nonbanks).  [Section 1061(b)(5).]  However, the FTC will now share enforcement authority of the credit laws (e.g., TILA, ECOA, FDCPA, etc.) with respect to nonbanks with the BCFP.  The FTC and the Bureau will negotiate an agreement for coordination regarding enforcement actions. The BCFP will issue regulations in these areas in lieu of the Federal Reserve Board, which previously had that authority. Unlike the other regulatory agencies affected, no employee of the FTC will be mandated to transfer to the new agency. However, the FTC will likely be less active in the financial services area because the new agency will have broader authority. The FTC also retains all of its authority under the FTC Act with regard to economic sectors outside of financial services.

Ronald McDonald--Creepy Stranger on the Playground?

by Steve Gardner

In June, my organization, the Center for Science in the Public Interest, gave notice to McDonald's that, unless it stopped predating on small children by offering them toys to get them to pester their parents for a Happy Meal, we would bring a state consumer protection lawsuit based on the developmental fact that young kids just don’t understand that an ad or other marketing tool is anything other than helpful advice. 

McDonald's, on the other hand, is all grown up and it knows precisely what it’s doing. Roy Bergold, who was McDonald's advertising head for 29 years, recently bragged:

“Sure, we marketed to kids. As Ray Kroc said, if you had $1 to spend on marketing, spend it on kids, because they bring mom and dad. . . . Parents should totally control their kids. Yeah, right. Research says that seven-year-olds and younger accept what we say in advertising as the truth. Heck, three-year-olds can identify brands using just their corporate logos. According to a survey commissioned by the Center for a New American Dream back in 2002, the average kid asks his parent for something nine times before the parent gives in. . . . What’s a mother to do under this assault?” (My emphasis.)

Amy Schmitz Article on Arbitration Clause Regulation

For those who haven't read enough yet on arbitration regulation, Amy Schmitz of Colorado Law has a new article in 15 Harvard Negotiation Law Review titled Legislating in the Light: Considering Empirical Data in Crafting Arbitration Reforms.  Here's the abstract:

Consumer advocates and policymakers call for abolition of predispute arbitration clauses in consumer contracts, while proponents of arbitration claim such abolition would increase companies’ dispute resolution costs, leading to higher prices and interest rates. Policymakers on both sides of the debate, however, rarely consider the empirical research necessary for crafting informed arbitration disclosure rules. This article therefore focuses on how varied research, including my own empirical studies, may inform policies regarding arbitration disclosure regulations. The article also offers suggestions for regulations tailored to have the most impact for the cost in light of this research. 

The Dodd-Frank Wall Street Reform Act: Mandatory Arbitration Provisions

by Deepak Gupta

The Wall Street Reform bill has a lot of stuff in it. If you have time to kill, you can pore through the actual text of the legislation here. If you're looking for something beyond the relatively superficial accounts in the newspapers, a few big law firms have already produced impressive summaries of the legislation, including Davis Polk, Mayer Brown, and Skadden.  Davis Polk also created a nifty set of slides showing the complex implementation process for the legislation (skip to slide 24 for the consumer financial protection provisions).  By their count, the bill will require a whopping 243 rulemakings and 67 studies.

One sure-to-be-closely-watched study/rulemaking combination is called for by Sec. 1028, which requires the new Bureau of Consumer Financial Protection to conduct a study of, and provide a report to Congress concerning, the use of mandatory pre-dispute arbitration in consumer financial services. The Bureau then has the authority, by rulemaking, to "prohibit or impose conditions or limitations on the use of" mandatory arbitration clauses, consistent with the study. This provision had its origins in the Obama Administration's initial white paper on financial reform and, amazingly, it stayed in the legislation all the way.  

Needless to say, Sec. 1028 is an enormous step forward in the campaign to end forced arbitration in the consumer-protection context. Corporate lobbyists, however, will use every opportunity to thwart a pro-consumer rulemaking and will likely return to Congress if they don't like what the study says.

The Act also confers similar authority on the SEC to ban mandatory arbitration in the securities context (Sec. 921) and flatly prohibits mandatory arbitration in mortgage and home equity loans--without the need for any further study or rulemaking (Sec. 1414).  Finally, the Act bans mandatory arbitration that would waive protections for those who blow the whistle on securities fraud (Sec. 922) and commodities fraud (Sec. 748).  The text of Sec. 1028 is below the jump.

What Wall Street Reform Means for You

Yes, I'm posting White House propaganda, but in my humble opinion this short animated video is a pretty good attempt to explain in simple terms what Wall Street Reform is all about:

"The Strongest Consumer Financial Protections In History"

The President's remarks from today's singing ceremony:

...[U]nless your business model depends on cutting corners or bilking your customers, you have nothing to fear from this reform. 

 

 Now, for all those Americans who are wondering what Wall Street Reform means for you, here's what you can expect. If you've ever applied for a credit card, a student loan, or a mortgage, you know the feeling of signing your name to pages of barely understandable fine print. But what often happens as a result, is that many Americans are caught by hidden fees and penalties, or saddled with loans they can't afford. That's what happened to Robin Fox, hit with a massive rate increase on her credit card balance even though she paid her bills on time. That's what happened to Andrew Giordano, who discovered hundreds of dollars in overdraft fees on his bank statement – fees he had no idea he might face. Both are here today.

Well, with this law, unfair rate hikes, like the one that hit Robin, will end for good. And we'll ensure that people like Andrew aren't unwittingly caught by overdraft fees when they sign up for a checking account. 

With this law, we'll crack down on abusive practices in the mortgage industry. We'll make sure that contracts are simpler – putting an end to many hidden penalties and fees in complex mortgages – so folks know what they're signing. 

With this law, students who take out college loans will be provided clear and concise information about their obligations. 

And with this law, ordinary investors – like seniors and folks saving for retirement – will be able to receive more information about the costs and risks of mutual funds and other investment products, so that they can better make financial decisions that work for them. 

All told, these reforms represent the strongest consumer financial protections in history. And these protections will be enforced by a new consumer watchdog with just one job: looking out for people – not big banks, not lenders, not investment houses – in the financial system. 

Oral Opinion Denying Preliminary Injunction in Houlihan Smith v. Forte

by Paul Alan Levy

A few months ago I discussed the denial of Houlihan Smith’s motion for a preliminary injunction against Julia Forte for allowing allegedly defamatory postings to remain on the 800Notes.com and whocallsme.com web sites.  District Judge Virginia Kendall, United States District Court for the Northern District of Illinois, decided that Forte was protected from suit by 47 U.S.C. § 230 and that re-labeling its defamation claims as trademark claims (or right of publicity claims, or misappropriation claims) was not enough to evade section 230.  Judge Kendall’s oral opinion was particularly significant for her recognition of the distinction between a use of a company’s name that harms the reputation of the mark — constituting tarnishment — and a use that only harms the reputation of the company, which is only defamation (if that).  Her oral opinion also contained useful discussion of the distinction between commercial and non-commercial use, drawing by analogy on First Amendment non-commercial speech doctrine, and relied on Prestonettes v. Coty to support the truthful use of a mark to identify the topic of discussion.

We have just received the transcript of the hearing; the oral opinion now appears on the Litigation Group web page about the case.

Vision Media Suit Over Criticism on 800Notes Dismissed

by Paul Alan Levy

 The lawsuit filed by Florida TV production company Vision Media TV group against Julia Forte has been dismissed.  The case has become a poster child for lawyers who profit from being hired to use litigation to try to suppress criticism, while the very existence of the litigation only makes matters worse for their clients. 

Represented by Florida lawyer Lee Levenson and later by Richmond lawyer John Dozier, Vision Media had complained that Forte had allowed the posting of allegedly defamatory characterizations of its sales practices on the message board about telemarketers at 800Notes.com, and had wrongly removed postings defending Vision Media that Vision Media staff  had placed on the message board while pretending to be satisfied customers, including a post bragging about its favorable rating with the Better Business Bureau.

In an opinion issued yesterday, United States District Judge Kenneth Marra dismissed the suit for lack of personal jurisdiction, holding that Vision Media had violated due process by proceeding against Forte in Florida.  The court therefore did not reach Forte’s alternate ground for dismissal based on Communications Decency Act section 230.

As a result of the litigation, half the hits on the first page of a Google search for “Vision Media TV” now refer to the litigation and to the accusations against Vision Media.  The litigation taught many prospective customers about the anonymous charges made against Vision Media — that Vision Media promotes its video production services by cold-calling non-profits and deceptively suggesting that it can get them free airtime on public television.  An experienced non-profit communications director, Jeff Cronin of the Center for Science in the Public Interest, detailed the various tricks Vision Media and associated enterprises had used to try to trick his group into buying its services.  

I Want the CFPB to Be Like Elizabeth Warren

by Jeff Sovern

 There's been a lot in the media about opposition to Elizabeth Warren to head the CFPB.  Here, for instance is one particularly interesting piece.  I have no idea if any of the reports are true.  But I do know that I want the CFPB to be just like Elizabeth Warren.  When I think of Elizabeth Warren, I think of someone who does the work to find out what the problems are, identifies the best solution to those problems, and works hard to make that solution a reality, even though it means offending powerful interests--which may be why there's opposition to her appointment (if there is opposition).   That's how we got the CFPB, and that's what we need in the CFPB.  We need an agency that bases its decisions on empirical realities rather than ideology.  Just like Elizabeth Warren.   And if that's what we want, shouldn't the CFPB be led by Elizabeth Warren? 

Jeff Gelles Column on How Avandia Controversy is the Product of Bad Business Incentives

Jeff Gelles has an interesting column, Financial reform, Avandia controversy expose problems in a market economy, comparing the causes of the financial crisis with the Avandia controversy.

Predatory Lender Tactics

by Jeff Sovern

Yesterday, the Pittsburgh Post-Gazette published my op-ed, Consumer Bureau is Just the First Step, which reports on the tactics one predatory lender used to persuade borrowers to enter into loans that were not in their best interest. Here it is:

Now that Congress has voted to create the Consumer Financial Protection Bureau, it will be up to the bureau to protect consumers from predatory lenders. The CFPB can be expected to face again the argument that the economic crisis was not a failure of consumer protection. With all the existing disclosure laws, how could consumers not have known what they were getting into?

An answer can be found in the confidential training manual of a predatory lender, the First Alliance Mortgage Co., attached to an affidavit in a Minnesota case by a former First Alliance loan officer, Greg Walling.

The manual instructs loan officers to point out forcefully, frequently and with the use of specified diagrams that a great deal of the money the borrower pays to the lender is interest and that much of that can be saved by prepaying the mortgage: "Did you realize that by the time you finish paying off this house, you actually agreed to pay off at least three houses?"

Nothing wrong with that. But it turns out to be a distraction from what is really going on.

Mr. Walling's affidavit explains that First Alliance charged high fees, but consumers overlooked that because the presentation "focuses the consumer's attention solely on the idea that the most important part of a mortgage is paying back the loan in a shorter time."

The presentation also undermined the legally mandated disclosures. Those disclosures undoubtedly showed a high APR -- that's how the interest rate is stated on the forms so consumers can comparison shop among different loans.

But before the consumer saw the final disclosures, Mr. Walling had explained that loans have three interest rates and that "the interest rate was what the consumer and I care about [and] the APR is what the federal government cares about ... APR was just an estimate and ... is always higher than the interest rate."

Though First Alliance's predatory practices ultimately brought it to a bad end, some of its practices did not die with it. Others have reported on mortgage originators who misled borrowers, while the complex loan terms often seen in subprime lending-payment option adjustable rate mortgages, hybrid ARMs and the like created their own distractions.

And the claim that disclosures did not cure the problem is, sadly, plausible.

Congress has made an important start down the road to protecting consumers. But now it will be up to the Consumer Financial Protection Bureau to take the next steps by realizing that disclosures are not enough to stop predatory lenders from deceiving consumers.

I've written more about the First Alliance manual and Mr. Walling's affidavit in my forthcoming Ohio State Law Journal article, Preventing Future Economic Crises Through Consumer Protection Law or How the Truth in Lending Act Failed the Subprime Borrowers, at pages 40-43.

Want to publish an article about the new financial reform legislation?

Now that Congress has passed, and the president will soon sign, Wall Street reform legislation, the question is just what does the new law say and what does it do and not do? Many have blogged about the bill, and numerous articles have been printed in newspapers, but there does not appear to be a detailed analysis of exactly what we have enacted, and the potential reach of the new agency. The Journal of Consumer and Commercial Law would like to fill that gap, and be the first to publish a detailed analysis of the new law. If a manuscript is received by August 20th, we can get it in the September issue. Due to the short notice, we will be very flexible with respect to format and length. If you want to put something together in the next month, let me know, alderman@uh.edu.

Congress Passes Financial Reform; Much More Must Be Done to Rein in Wall Street

by Rob Weissman

More than a year and a half after Wall Street crashed the global economy, Congress has finally taken important action to rein in the Wall Street titans. The Wall Street reform bill is a crucial first step, passed despite the financial sector’s enormous investments in lobbying and campaign contributions. But Wall Street remains far too powerful in Washington, with the result that this bill does not contain crucial reforms that must be included in subsequent reform efforts.

On the positive side of the ledger, the bill contains stronger consumer financial protections and curbs on some of the worst practices in the derivatives markets.

Consumer Protection: The bill consolidates and streamlines existing consumer financial protection by creating a Consumer Financial Protection Bureau. This bureau will have the authority to crack down on unfair, deceptive and abusive practices in connection with consumer products such as payday loans, credit cards and mortgages by using new rules and enforcement powers. It also will have authority to ban particularly harmful practices such as forced arbitration. Had the bureau been in place and operating effectively during the run-up to the financial crisis, it would have prevented the predatory and abusive mortgage lending practices that led directly to the crash.

Transparency, Oversight and Stability in the Over-the-Counter (OTC) Derivatives Market: The bill also makes major progress on reining in reckless and unfair derivatives practices. It restricts the most egregious practices, such as federally insured banks engaging in risky proprietary trading and financial institutions making bets against their own clients. It requires the vast majority of previously unregulated OTC derivatives to be cleared and traded on regulated exchanges. Derivatives were a critical cause of the financial crisis; new clearing and exchange rules should go a long way toward stabilizing the system.

There are many other positive components of the bill. How effective they turn out to be will depend crucially on implementation over the next months and years. If Wall Street can regain control of the regulatory process, then many of the potential benefits from this bill will be lost.

Unfortunately, many important reforms are missing from the bill. Some key elements were jettisoned or weakened in the conference process. These include limits on commercial banks owning hedge funds, and the bulk of the requirement that commercial banks spin off their derivatives trading desks.

Financial Reform Passes!

Brian Beutler has the story at Talking Points Memo:

It's done. The Senate this afternoon, by a vote of 60-39 passed the final version of Wall Street reform legislation -- the exact same version the House passed two weeks ago, which will now go the White House for a signature. Senate Majority Leader Harry Reid (D-NV) said that the President plans to sign the bill next week.

The development, though expected for days, represents a major achievement for President Obama and congressional Democrats -- their first landmark bill since health care. And this time it's actually popular.

President Obama will sign the bill next week.